Growing inventories driven by a mild summer in many parts of the United States has driven natural gas prices to lows which have not seen in a year. Actually, the pattern is not that dissimilar to last year. There was a hurricane premium early in the season, but as we moved through the summer and saw an inventory build-up there was a seasonal decline in price. With reduced uncertainty, the actually changes in volatility has been surprisingly stable relative to the past. Last year saw much greater variation.
We are moving into the height of the hurricane season, so there is room for some large swings, but the time it takes to develop a hurricane and potentially see it hit natural gas producing areas suggest that we are safe for at least another 10 days. There are no storms on the horizon.
This was the 17th consecutive week of increased inventories, which remain significantly ahead of last year’s record levels. If there is inventory build-up there is less likelihood for a hurricane premium to sustain prices at a high level. What is unusual for the natural gas is the price curve for back month futures. The seasonal high for this winter is markedly lower than what we are seeing for the next few winters. The combination of high inventories and some weather forecasts of a mild winter are keeping prices moderated. While the lows last year touched $4, there should be a leveling of price as we move closer to the heating season.
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